New York Courts Continue to Limit Employee Noncompetes

  • Posted on: Jun 11 2020
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New York courts often refuse to enforce noncompete agreements. Most recently, in Flatiron Health v. Carson, the U.S. District Court for the Southern District of New York ruled that an employer’s restrictions on a former employee were unenforceable. Despite the fact that courts continue to limit employee noncompetes, it takes a skilled employment lawyer to protect your rights if you are being asked to sign one.

The Backdrop

Plaintiff Flatiron Health filed a lawsuit against former employee Kenneth Carson, M.D. and his new employer, Tempus Inc. to enforce a noncompete agreement. Flatiron and Tempus are competitors in the health technology space that specialize in collecting and analyzing clinical and molecular data. Carson, a hematologist and medical oncologist, served as the medical director of Flatiron from 2016 to 2019.

Carson had signed an employment agreement with a restrictive covenant barring him from doing anything to divert business of any kind from Flatiron, including soliciting or interfering with any of the Company’s customers, clients, members, business partners or suppliers, for the first year following his employment. In short, the Southern District found that this restrictive covenant was unenforceable because it was too broad. 

What is a Non-Compete Agreement?

A non-compete agreement can either be a stand-alone agreement or included as a restrictive covenant in an employment agreement that prohibits an employee from working for a company’s competitors. In addition, the employee typically agrees not to use the employer’s client lists for future business. 

While prospective employees cannot be forced to sign a noncompete, it is typically a condition of employment. Generally, to be enforceable, a non-compete must be limited to a specific geographic area and a set period of time after the employment relationship ends. 

New York courts have also established a framework to determine the enforceability of noncompete agreements based on the following four factors:

  • The agreement must be limited to a time and place that is reasonable
  • The agreement must not place an unreasonable burden on the former employee
  • The agreement must not harm the interests of the general public
  • The agreement must not be greater than required to protect the employer’s legitimate interests

Moreover, courts have held that employers generally have three legitimate interests in enforcing a noncompete:

  • Preventing an employee’s solicitation or disclosure of trade secrets
  • Preventing an employee’s release of confidential information about the employer’s customers
  • Cases in which the employee’s services are deemed special or unique

It is worth noting that “special or unique” employers are professionals in relationship-driven fields. The courts have held that in certain professional fields, employers have a legitimate interest in protecting client relationships developed by an employee at the employer’s expense.

The Ruling in Flatiron v. Carson

The Southern District ruled in Flatiron that the agreement was unenforceable because it was not limited to client relationships developed at Flatiron’s expense, but rather to all clients, including those that the plaintiff may have established independently. The District Court also declined to find the restrictive covenant enforceable in part, as courts in New York have previously ruled. 

Why This Matters

Given the District Court’s ruling in Flatiron v. Carson, businesses should consult with an employment lawyer to ensure any restrictive covenants in employment agreements fall within the established framework. Similarly, a skilled employment law attorney can help an employee challenge the enforceability of a noncompete agreement.

Posted in: Employment Agreements

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